Price Increase: How to Do a SaaS Pricing Change in 8 Steps

Jason Quey
March 22, 2021

“You sold out your entire supply of pearls after 7x-ing your price?” I asked.


“Yeah, we sold out in a week.” CJ told me, matter of factly. I was both surprised and not surprised. SaaS pricing changes are nothing new to me. But the magnitude of the price increase in retail was novel.


CJ continued, “When we bought the pearls, we first sold them for $2 a pearl to try to sell them quickly. For months, no one bought the pearls. We bumped the price up to $15 a pearl and the box sold out that week.”


Price is always a consideration for any buying decision your customers make.


That’s why nailing your pricing strategy is your most impactful element of your growth strategy to get 1,000 customers in a year.


A price increase campaign is the low hanging fruit you should pluck first to get more profit, conversion rates, and customers.


Think about it.


The more revenue you get from the value you deliver, the more you can invest into your product, marketing, and support. Or you can pocket the extra profit.


In simple terms, a price increase done right will make it rain money.


rain money
(Source)


In this article, I’m going to share how we did a price increase for Podpage to increase their annual recurring revenue by 28.5%


Yes, we increased Podpage’s revenue faster than a Product Hunt launch and TechCrunch feature the month before.


Podpage revenue from a price increase


The best part?


Podpage didn’t lose a single customer from the price increase. None of their customers questioned the price update. And early qualitative signals show this improved customer loyalty too.


You too can increase the price of your SaaS... even if you’re an early-stage SaaS like Podpage.

First, you'll learn answers to questions like:

  1. What is the reason for a price increase?
  2. What is the expected outcome of a price increase on your business?
  3. How do you justify a price increase?


Then I’ll go over the 8-step process we use to help SaaS startups do a price increase campaign:

  1. Choose your success metrics.
  2. Do customer research.
  3. Segment your customers to optimize growth for word-of-mouth.
  4. Run a price sensitivity analysis.
  5. Align your pricing to your growth strategy.
  6. Create and execute your price increase notice plan.
  7. Raise your prices.
  8. Measure impact.

What is the reason for a price increase?


Very founders and the marketers or agencies they hire know how to do a price increase correctly.


It makes sense because there’s a lot potentially at stake.


If you do a price increase campaign wrong, you’ll potentially:

  1. Lose subscription customers.
  2. Increase customer complaints.
  3. Decrease customer loyalty.


But as I shared earlier about Podpage, it’s quite possible to increase your prices without losing customers and making customers upset. This becomes especially easier if you partner with someone who’s done this before.


Unfortunately…


Rather than taking action, some founders stall out from considering a price increase campaign because they can’t answer questions like:

  1. How will customers react to the price increase?
  2. Will customers raise an issue with the price increase? If so, how will I explain the increase to them?
  3. How many subscription customers might I lose?
  4. How will I handle customers who are not happy with the price increase?
  5. Will the price increase affect customer loyalty?


Which means if you do a price increase campaign right, you’ll create a competitive advantage over your better funded competitors.


Why?


Because you’ll be able to command premium rates. This will allow you to invest more into your product, service, and marketing.


Marketing channels are getting more expensive as saturation increases.

  1. Your audience is becoming more saturated as you target lower intent audiences.
  2. Your growth channels is becoming more saturated because each channel has a growth ceiling. 
  3. And your market is becoming more saturated as more competitors enter the market every year.


A price increase helps you stay in the growth game longer. On the other hand, your competitors who keep their price the same will stagnate and stop growing because they can’t keep up with the saturation.


As such, it’s in your best interest to consider a price increase campaign before your bigger competitors do so.


What should you expect if you execute on a price increase campaign correctly?

What is the expected outcome of a price increase on your business?


A price increase will often:

  1. Increase customer acquisition as potential customers buy before the price increase.
  2. Increase expansion revenue as current customers may upgrade to a new pricing plan.
  3. Increase word-of-mouth and referral revenue as current customers tell those they know to buy before the price increases.


A price increase will also increase sustainable growth by:

  1. Increasing what you can pay to acquire new customers. If you double the price of your product, you’ll double the customer’s lifetime value (LTV). Doubling the LTV doubles the cost you can pay to acquire a customer (CAC). If your CAC stays the same, then you can reinvest more profit to grow your startup even faster.
  2. Increasing your conversion rate. Underpriced products decrease conversion rates as much as overpriced products. For example, if it’s priced too low, they may think you can’t afford to invest in your product roadmap.

Reducing customer churn. Before the price increase, you should “grandfather” your current customers at the old price to reward their loyalty. This creates “reverse FOMO” because the customer fears quitting means they won’t get the old price again.

How do you justify a price increase?


Like all forms of marketing, a price increase is a mix of science and art.


A price increase is a science because you can get data to show when you should do a price increase campaign and what to increase your price.


For example, to see if you should consider a price increase, ask yourself:

  1. Did I guess the price of my product? 9 times out of 10, founders guess their prices at the beginning. While you can (and should) get pricing data when validating a product, shipping something is better than nothing. But if you came up with your price by guessing a number, a price increase campaign will almost certainly get you more growth because it’s almost impossible to guess the right price.
  2. Has it been over a year since I updated my pricing? Let’s assume you add 10% more value to your product by fixing bugs and adding new features every month. After one year, your product’s value will have gone up by 214%. Sure, you won’t capture 100% of the added value in your price. But don’t you think you’re leaving a lot of money on the table if you haven’t update your pricing in the last year?
  3. Have customers told me I should increase my prices? It may surprise you that your customers tell you to raise your prices. Yet I’ve seen this happen because they appreciate the value you add to their lives. If your customers are telling you to increase your prices, you likely should have run a price increase campaign a year ago because this isn’t in their best interest to share that with you.
  4. Do I have the right mix of customers in each pricing plan? With two pricing plans, you should have about 80% of your customers in the lower priced plan and 20% in the higher priced plan. With three plans, you should have 50-60% in the lowest plan, 20-30% in the middle plan, and 10-20% in the highest plan. If these numbers are off, you should either do a price increase plan or create a new pricing plan. Or both.
  5. Do I have product-market fit? Let’s say you have product-market fit by getting 40% of customers to say they’d be very disappointed if your product were to disappear. At this point, you’ll likely want to change your pricing strategy. This allows you to optimize for more market penetration and profitability.


If you can answer “yes” to one of these questions, you likely should do a price increase campaign.


Pricing is also a science because you can get data on your customer’s willingness to pay for your product. I’ll talk about this more later in this article.


A price increase is also an art because you need to interpret the data. 


For example...


You need to understand how pricing fits in your brand positioning strategy. A lot of inexperienced founders and marketers get too caught up in pricing psychology without considering the brand strategy. A classic example of this happens when founders ask if they should end prices using “magical numbers” like 7, 9, or 0. 


Sure, conversion tends to be 15 to 20% higher for lower priced SaaS products ending in 9. But net-retention is usually 10% higher for products ending in 0. What’s more important is to consider that prices ending in 9 appear as a discount and how that plays into your brand strategy.


You need to understand how pricing fits in your go-to-market strategy. Do you have product-market fit? How many pricing plans do you have? Do you have a freemium or a free trial plan? Are you using a self-serve sales model or do you require a demo? 


All these questions change the art of how to price your product.


While the art of pricing is important, let’s start by adding some science into your pricing strategy.


(Source)


When you start the 8-step process to increase your prices, don’t forget to...

Step 1: Choose your success metrics


“What gets measured gets managed.” ~ Peter Drucker.


Before starting any marketing campaign, you need clear metrics and how you will measure success. You’ll want to decide this before you start to keep everyone honest. Otherwise it’s all too easy to bend the numbers to make the campaign look good.


For Podpage, we wanted to estimate the immediate revenue increase as they got new customers and current customers upgraded plans. So we chose to look at their recurring revenue and new customer subscriptions.


Podpage is an early-stage startup so the best comparison was to the previous month’s data. 


This proved to be an exciting challenge because Podpage launched on Product Hunt and was featured in TechCrunch the month before the price increase.


Once you have your success metrics, it’s time to get your hands dirty and get some customer data.

Step 2: Do customer research


At Growth Ramp, we take a customer-first approach to product-led growth. This means before coming up with growth ideas for the go-to-market strategy, we first want to talk to customers. 


AKA, “getting outside the building.” Or at least sending customer surveys and hopping on phone calls in a post-COVID world.


After all, it’s the customer who has the problem, right?


This is one way to doing things that don’t scale that will enable you to scale your growth faster.


There are many opportunities to get customer data. 


You can use behavior analytics tools with on-site surveys and feedback widgets. This can work if you have several thousand people going to your website every month.


But because response rates are low (and therefore slower), I recommend setting up an email outreach sequence to all customers.


For Podpage, we asked 27 questions to flesh out their pricing, positioning, and go-to-market strategy. We then did over 20 customers to get more qualitative voice-of-the-customer data.


Unless you know how to send outreach emails, you may want to start by asking 5-10 survey questions. This way you’ll have a higher survey completion rate.


Here are the seven pricing questions we used for Podpage’s price increase campaign:

  1. Which pricing plan are you using?
  2. How would you describe yourself?
  3. How would you feel if you could no longer use our product? Very Disappointed, Somewhat Disappointed, Not Disappointed at All, or No Longer Using the Product?
  4. At what price would you consider our product a bargain, a great buy for the money?
  5. At what price would you consider our product starting to get expensive, so that it's not out of the question, but you'd have to give it some thought before buying it?
  6. At what price would you consider our product, too expensive to buy it?
  7. At what price would you consider our product too low that you feel the quality couldn’t be very good?


Once you’ve sent the surveys out, you’ll want to segment the customer data to optimize for growth.

Step 3: Segment your customers to optimize growth for word-of-mouth


Was it strange that I recommended you should ask your customers to describe themselves, even though you’re doing a price increase campaign? What about asking about how they feel about your product?


These two questions may seem out of place.


But smart founders know word-of-mouth is the holy grail of marketing. As such the best growth strategies optimize for the customers who love your product and spread the word to others.


There are three types of segmentation I recommend you do to get maximum results for your price increase campaign:

  1. Pricing plan segmentation. Each pricing plan will have different price ranges. Make sure to keep your data clean by segmenting by pricing plans in step 3.
  2. Customer segmentation. Every pricing plan should correlate with one customer persona. To do this, you asked customers to describe themselves. Contrary to popular article belief, your customer personas should NOT contain the answers to questions like “What is your income?” or “How many children do you have?” in the first survey. This is because you need a hypothesis what causes customers to change their buying habits. For example analyzing Podpage’s data revealed their customers buying habits change due to their years of podcasting experience and their monetization model.
  3. Customer delight segmentation. The final segmentation should be for customers who say they’d be Very Disappointed if your product were to disappear. These are often your highest value customers because they stick around longer and refer more customers to you.


Now you’ll want to find out the willingness to pay for each customer segment.

Step 4: Run a price sensitivity analysis


The next step is to look at the four willingness to pay pricing questions:

  1. Inexpensive, Will Buy: At what price would you consider our product a bargain, a great buy for the money?
  2. Expensive, Will Buy: At what price would you consider our product starting to get expensive, so that it's not out of the question, but you'd have to give it some thought before buying it?
  3. Too Expensive: At what price would you consider our product, too expensive to buy it?
  4. Too Cheap: At what price would you consider our product too low that you feel the quality couldn’t be very good?


To use this data you will first want to set up a price sensitivity table in Google Sheets. Your price sensitivity table should look something like this:

 

price sensitivity table


Using this data you can create a line graph based on your customer’s price range. Your graph should look something like this:

 

price sensitivity analysis


Once you create your line chart, you are looking for the acceptable price range. AKA, your money zone:


willingness to pay range

Remember to segment your customers and run an analysis for each segment.


Now you’ll want to chose the price to align with your growth strategy.

Step 5: Align your pricing to your growth strategy


Pricing your product above or below the money zone will drastically decrease your revenue. But there are still several prices to choose from.


There are four key points in this graph you want to look at:

  1. Where “Expensive, Will Buy” (Red) meets “Too Cheap” (Green). This is the lowest price of your acceptable price range.
  2. Where “Too Expensive” (Yellow) meets “Too Cheap” (Green).
  3. Where “Expensive, Will Buy” (Red) meets “Inexpensive, Will Buy” (Blue).
  4. Where “Too Expensive” (Yellow) meets “Inexpensive, Will Buy” (Blue). This is the highest price of your acceptable price range.


Your pricing, positioning, and go-to-market strategy will change what price you should choose in the money zone. But you should price your product in the money zone.


Here are three questions to consider what to price your product:

  1. Do you have product-market fit? If so, you may want to price your product higher because word-of-mouth can make up for a slightly higher price.
  2. Do you want different pricing approaches for different pricing plans? Let’s say one customer segment is more competitive. You may want to consider a lower price that fits inside the money zone. Or perhaps you want the lower price plan at market penetration, then use customer success reps to expand into your higher priced plans.
  3. How close in price are your pricing plans? If your pricing is too close, customers may have a harder time deciding which plan is right for them.


Either way, pricing your product in your money zone is a fantastic starting point.


Once you’ve chosen your pricing, it’s time to create a plan to let your customers know about the pricing change.

Step 6: Create and execute your price increase notice plan


Stop!


You have decided on your new price. But before you increase your prices, you should create a simple plan to notify your customers. This will allow you to increase your expansion revenue and new customer revenue.


For Podpage, we did a two week notification campaign, but you can test different lengths. 


Let’s look at where you should share a price increase and how to let customers know about the price increase.


Where should I share the price increase?


There are many marketing channels you can use to promote your price increase. 


My recommendation is to use the channels already in your go-to-market strategy. This way you don’t need to learn a new GTM strategy. Furthermore your customers are expecting communication on those channels.


You may find it especially valuable to notify customers by email and on your pricing page. Email often has the highest engagement rate. And your customers are expecting price information on the pricing page.


What’s important is to consider if you’re targeting new customers or existing customers. Once you have done so, you’ll want to decide what’s the main call to action.


How do I tell customers about a price increase?


The simple answer is you just tell them it’s happening and when. If you did your research right, very few customers, if any, will respond negatively to your new prices.


That said, here are some goals to keep in mind when telling your customers:

  1. Increase current customer loyalty. Your early customers bought your product before you became a big name brand. You can reward that loyalty by not increasing their price. Furthermore, letting them know you’re keeping their price the same because you appreciate their support will make them feel good about their decision.
  2. Encourage customers to upgrade plans. Some of your customers are on the fence about upgrading their plan. By announcing they’ll pay the old price before the deadline, you can encourage them to upgrade.
  3. Get potential customers an incentive to buy now. Like your customers, there are potential customers who are on the fence about buying your product. The most common groups include freemium members, free trial members, email list subscribers, and website visitors. In addition to notifying these groups, we encouraged Podpage customers to sign up for their referral program.


Now it’s time to raise the roof and raise your prices.

Step 7: Raise your prices


Once you’ve reached your deadline, it’s time to raise your prices.


Keep in mind that your customers will ask you questions and favors for the next week or so. For example their credit card expired, can they get in at the old price? It’s up to you how you want to handle these cases.


Before you make any exceptions you’ll want to think how your decision changes someone’s trust in your company.


Let’s say you told people the 1st of the month is when prices go up. On the 3rd a customer asks for the old price. 


Whatever you decide is best, I recommend waiting two weeks before measuring the impact of your campaign. This gives time for the dust to settle into what’s your new normal.

Step 8: Measure impact


After the price increase campaign finishes, it’s time to go back to see how well the campaign performed.


In particular, you want to answer these questions:

  1. How much immediate annual recurring revenue (ARR) did you get from the price increase?
  2. What is your new conversion rate from prospect to paying customer? If it’s lower, does the additional revenue per customer off-set the lower conversion rate?


In the unlikely event a price increase did not work, you can always do a campaign to revert back to the old prices. 


To do this, you’ll want to inform customers about your decision to lower your price. You’ll also want to offer them a chance to downgrade and refund the difference if the only reason they upgraded was because of the new price.

What you should do next…


A price increase is simple, powerful, but not easy.


If you do a price increase wrong, you can harm your business. You can lose customers, increase customer complaints, and decrease customer loyalty.


But in the hands of a professional product marketer, a price increase can work wonders. It can get new customers, increase your revenue, and beat your competitors. For Podpage, compared to the month before their annual recurring revenue increased by 28.5%.


If you feel confident in your ability to do a price increase campaign, just follow our playbook.


Or you can apply to hire Growth Ramp to do it for you to maximize your revenue and get 1,000 customers in a year. You also can learn more about our pricing strategy services.

Jason Quey

I am the CEO and Founder of Growth Ramp. I enjoy serving early-stage startups to get them 1,000 customers in a year.

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